Getting religion

In the run-up to the eagerly anticipated Copenhagen climate change summit, much has been made of the "alliance" between China and India.

Speaking at climate change talks in L’Aquila, Italy over the summer, Indian Prime Minister Manmohan Singh said his country’s position was "coordinated" with China’s. Jairam Ramesh, India’s minister of state for environment and forests put it even more bluntly: "India considers China its most important ally in the Copenhagen negotiations."

Some skeptics said this deal was more in China’s interests than India’s, suggesting that Beijing was trying to group itself together with other developing countries – including India – to disguise the fact that it is now producing far more pollution than they are. According to BP’s Statistical Review of World Energy 2009, China accounted for 17.7% of global consumption of primary forms of traded energy (coal, oil, natural gas) in 2008. This is more than India (3.8%), Brazil (2.0%) and Russia (6.1%) combined.

"Lumping India and China together offers China political cover in the negotiations," wrote Nina Hachigan, a China-US relations specialist at the Center for American Progress, a think-tank, in a recent blog post. She speculated as to whether China and India should be strategically "decoupled" by rival negotiators.

Parting of the ways

Hachigan’s speculation appears to have become reality, but it was Beijing that acted first. In September, President Hu Jintao committed China to significant but unspecified reductions to its carbon emissions growth. This was styled in the press as a "break" with India, which had refused to make any concessions to date. Shortly afterward, India said it would commit to numeric cuts to emissions. To some it appeared that the accord between the two countries had turned into a game of green one-upmanship. "Every country walks on two legs; every country looks after itself [and] its domestic agenda," said E.B. Rajesh, chief representative for the Confederation of Indian Industry (CII) in China, justifying India’s change in stance.

But regardless of India’s new negotiation position, China is presently better positioned to take advantage of a global climate agreement. China has already overtaken its neighbor in selling Carbon Emissions Reduction credits (CERs) under Kyoto’s Clean Development Mechanism and has leveraged technology transfers to build global players in wind and solar power. China’s environmental policy institutions are also far more developed than India’s. For all the flack China’s Ministry for Environmental Protection might get for its perceived ineffectiveness, a comparable institution didn’t even exist in India until September.

Thus while both countries’ obligations under the Kyoto Protocol were relatively light compared with the "Annex 1" countries, which were made to accept binding emissions caps, India largely failed to implement what few obligations it did have.

"Non-Annex 1 countries don’t have mandatory caps, but they are committed to a substantial deviation from business as usual and they have to take measurable, reportable and verifiable measures in mitigation," said Isabel Hilton, editor of Chinadialogue.net, a bilingual website that focuses on environmental issues. "But it’s only this year that India has begun to formally enact a national plan on these measures. Very few of them have been enacted or are in progress at all."

As a result, environmental degradation in India is beginning to produce horror stories similar to those in China. For example, in October The Observer, a UK newspaper, reported that a disturbing number of children in the Punjab region were exhibiting severe developmental defects caused by horrifically high levels of uranium in their bodies. As in China, Indian authorities’ first steps were to cover up the disaster and block research into whether the high uranium levels were linked to the dry ash produced by the region’s coal-fired power plants.

Underrepresented

In terms of business, the Indian cleantech sector still lacks the financing it needs to produce global players. Bakers Investment Group runs the ALTEXGlobal Index, which tracks the world’s largest alternative and renewable energy companies by market capitalization. There are eight Chinese firms in the index with a combined market capitalization of US$24.7 billion. India has just two representatives, wind power giant Suzlon and Indra Prastha Gas, with a combined cap of US$3.5 billion.

Ross Paul, chief investment officer with Bakers, believes that Beijing’s heavy state commitment explains the difference. "China operates on a global stage, and is looking to acquire assets globally. India doesn’t have the centralized government support to do that," he said.

Nor does India have much attraction for private investors. According to a report produced by the Cleantech Group, which is affiliated with consultancy Deloitte, China took 3% of global venture capital (VC) investment in cleantech in the third quarter of this year, raising US$41.8 million, compared with India’s US$21.5 million (1% of the world total). India’s VC attraction declined 89% year-on-year despite the overall resurgence of VC investment in cleantech worldwide.

China also logged more than US$886 million in private equity placements and US$146 million in mergers and acquisitions. India posted US$142 million worth of M&A and no private equity activity.

Urbanization issues

Paul of Bakers said that India is less attractive to foreign investors because the structure of its urban development. "India is not building large new urban areas; it’s more the poor moving into existing urban areas. China is creating more urban environments and a more diversified and potentially a deeper middle class by creating new cities and more industrial jobs. As a result, the demand for energy is not as large [as in China], and that demand is what foreign investors are looking for."

Apart from Suzlon and Indra Prastha, India’s alternative energy firms tend to be of a local scale. But these companies still have trouble supplying the domestic market. For example, the rickety, blackout-prone state of its national electricity grid makes manufacturing solar cells, which requires a steady power supply, difficult.

"Here’s a country that’s a leader in IT and technology, but they don’t make silicon [components] because India lacks reliable and inexpensive conditioned electric power," said Phiroze Nagarvala, former India country manager for construction multinational Bechtel.

Those assigning blame for India’s lack of progress frequently fault the fragmented and populist nature of the country’s politics. It certainly appears that Indian voters have not historically been particularly receptive to green evangelism. Nandan Nilekani, a founder of Indian IT giant Infosys, recently published a book in which he recounts a prominent Indian politician telling him that global warming theory is a "Western conspiracy meant to keep India poor and undeveloped."

Of those that do subscribe to global warming theory, most believe that since the West created the problem, the West should pay to solve it. So when Singh committed to restraining global temperature increase to 2 degrees Celsius in L’Aquila, he was widely criticized in India for making a "backdoor" concession to ultimate emissions caps. Ramesh had earlier told the national parliament that India would reject any such compromise: "We will not accept any legally binding caps. Not now or later."

There are other political issues, less intentionally connected to treaty building, that have a deeper impact. The management of the national electricity grid is one. Under Indian law, both the central government and the state governments must agree on grid policy and reform. This, in addition to other factors, has resulted in a patchwork system of power transmission from which nearly 600 million Indians are excluded. The grid is in no condition to deliver variable forms of renewable energy like solar or wind.

While Beijing is currently planning to ram through a "smart grid" capable of handling variable power sources by 2020, New Delhi faces serious technical and political obstacles to doing so.

At the same time, nearly half of India’s generated power is effectively stolen or given away, said Nagarvala. This means the portions of industry that get stuck with the bill have to pay more, cramping overall industrial development.

The good news

Even so, India is not doomed to the hindmost ranks of sustainable development. Indeed, in some areas it has advantages over China.

For one thing, even though the last decade has been one of wasted opportunity, India is still doing far less damage than China. Chinese industry is almost twice as energy intensive as India’s, using 9,080.4 British thermal units (btus) per US$2,000 of GDP compared with 4,825 btus in India. The average Chinese citizen produces 2.7 tons of pollution per year; an Indian produces only one ton.

And unlike in China, India’s private sector is pushing for sustainability. "There are a lot of private firms voluntarily coming forward to take advantage of the business potential," said Rajesh of CII.

In most cases this is simple self-interest. Because Indian firms pay more than market rates for power due to taxes and giveaways, energy conservation can realize large upfront cost savings. In China, clumsy state controls and energy subsidies inadvertently encourage energy waste.

Some say the enormous holes in India’s grid are an opportunity to leapfrog obsolete technologies. Just as the country skipped over conventional telephone lines into mobile communications, it can build a green grid – or implement more localized sources of alternative energy – without worrying about preexisting investments (and jobs) related to conventional power transmission systems. Indeed, if India can leverage "village-level" power sources like biomass, solar and wind, it may realize greater environmental benefits than China will from its alternative energy champions, said Paul of Bakers.

Finally, having an active civil society may be an annoyance, but in the long term India’s free press and engaged citizenry will prove assets to the cause of producing a sustainably minded society.

Nagarvala said that in tours around the country he saw much evidence of a changing mood in the Indian populace. "I was in the Ladakh region bordering Tibet, and all the people were talking about the change in climate and the retreat of the glaciers… Most Indians seem to realize it’s in their interests to do something."

He also believes that India’s occasionally exasperating system of checks and balances has an upside: "In India the [political] center is a coalition of eight or nine parties. There will never be a unified drive in any one direction, like in China. On the other hand, it will never be driven to a negative extreme."

No zero-sum game

Some wonder whether cleantech will be another area of economic contention between Asia’s two developing economic colossi. However, there are substantial reasons for both to avoid a trade war. The trade and investment relationship is bidirectional, for one. For example, Indian construction firm Larsen & Toubro has partnered with the Shanghai Urban Construction Group to build New Delhi’s subway system. Other Chinese firms have picked up contracts building out India’s infrastructure.

From the Indian side, despite being blocked from bidding for recent wind power contracts by Beijing, Suzlon is still selling turbines nationwide that have been built in its US$60 million Tianjin facility. Thermax, which produces a component that improves air conditioning plant efficiency, is filling domestic orders from its new Zhejiang subsidiary. Other Indian firms are selling services or using China as a green outsourcing base.

As far as India’s domestic politics are concerned, New Delhi has begun putting its money where its mouth is. With the help of international investors, the country is finally building cleantech research institutes and recently announced plans to create a domestic cleantech VC fund.

But a lot still rests on Indian politicians following through. "It is something that requires political will," said CII’s Rajesh. "Industry support is only a part."